Foreign and domestic investments: The economic future

Foreign and domestic investments: The economic future

The improvements in public infrastructure facilities described earlier are likely to invite good developments.

The expansion of private investments can be one such outcome. Among these would be greater in private investments.

Recent BOI investment approvals. A recent report to the President from the Department of Trade and Industry’s Board of Investments (BOI) provides an upbeat assessment on future investment flows.

The frame of reference starts from July 2022 – the start of the current government – to the latest month this year.

The volume of foreign investment approvals by the BOI has reached P1.07 trillion pesos from January to October this year, marking an 86 percent growth in volume of approvals compared to the P576 billion during the same 10-month period of the previous year. The projects involve both foreign investments and domestic investments approved by the BOI and other investment promoting agencies.

Essentially, the project approvals cited are in the form of future investment commitments. They would involve new inflows of foreign and domestic investments when project constructions start. The volume of projects involving foreign direct investments exceed those from domestic investments. This is a good sign of upheaval in the volume of forthcoming FDIs.

Is this shift to be the case for the next few years in the country? This is the substantial question for the Philippines. One reason for its relative decline in terms of its ASEAN neighbors is that, as a country, it has lagged behind in the attraction of FDIs. But the current shift in FDIs reflected in this report could imply a favorable change in the country’s investment climate.

Sources of new FDIs. According to the BOI, the FDI commitments are at a peak level. The total of P757 billion represent more than a five-fold increase from the previous year’s P113 billion.

According to the BOI, the biggest source of new investment projects is Europe. Germany accounts for P393 billion; The Netherlands P333 billion; Singapore, P17 billion; United States, P2.6 billion; France and United Kingdom, P1 billion each.

If the projects are realized as proposed, this will mark a major change in the profile of FDI investments in the country. The entry of Germany and the Netherlands as major sources of new investments reflects a change of pattern of FDIs. In the past, German investments had been negligible even as the Netherlands has had large investments in the country. Also, investments from Japan, the United States, and Singapore and Hong Kong had been important.

Domestic private investment approvals suffered some contraction this year, but the expansion of foreign investments more than compensate for the decline. During more propitious times, foreign and domestic investments would move in the same direction.

Leaf-frogging to renewable energy. Of the 1.03 trillion new projects reported by the BOI, P900 billion are investments in renewable energy and the power sector of the economy.

There is a big story to be told here. First, it tells about the directions of the country’s energy development program. Second, it affirms the need for new economic policies to expand the economic frontier forward in a big way.

In this second case, I speak about liberalizing the foreign investment laws to enable the country to move in a big way. The case in point is the reform that opens the production of energy – that is, electricity production – to full ownership by foreign capital.

The energy development program continues to embrace strongly the use of indigenous renewable energy sources in the mix of electricity generation strategies. We are not just tapping geothermal energy, but also solar and wind energy in a large way. In the last decade, the cost of renewable energy technology has become more competitive. It is also a clean energy source that dovetails with the measures to mitigate environmental damage.

It now, therefore, makes economic sense to leaf-frog toward the most promising technologies for electricity generation.

In his second SONA, President Marcos said it is time to re-examine nuclear energy to attract more investors and ensure enough power supply. He said that cheap and reliable energy is a requirement for economic growth as it is related to the ease of doing business.

He stressed: “We must build new power plants. We must take advantage of all the best technology that is now available, especially in the areas of renewable energy.

In compliance with this directive, the Department of Energy (DOE) crafted an energy development plan that includes the adoption of the newest promising technologies in energy production within the mix of processes adopted in expanding the country’s energy. This meant focus on renewable energy programs and the adoption of cost-efficient clean energy sources.

From July 2022 to June 2023, the DOE awarded contracts with a potential capacity of 31,131.7 megawatts. Of these, 72 contracts were solar projects, 30 wind, 20 hydro, two are biomass, one in ocean and one in geothermal. Initially, many of the renewable projects are small in scale.

Moreover, DOE approved a project under full 100 percent foreign ownership. Three offshore wind contracts with a combined capacity of two gigawatts were awarded to Copenhagen Infrastructure New Markets Fund, a foreign company. The projects are to be in the offshore areas of (1) Camarines Norte; (2) northern Samar; and of (3) Dagupan bay in Pangasinan and La Union provinces

To pave the way for the transfer of technology on nuclear energy, especially the small modular nuclear reactors – some as small as a city bus – the Philippines and the United States signed an agreement on nuclear energy on the side of the recent Asia-Pacific Economic Conference (APEC) in San Francisco, on Nov. 16.

Further to this agreement, the Manila Electric Company signed with the US based Safe Nuclear Corp. to undertake a pre-feasibility study on a nuclear system using micro nuclear reactors.

Very recently, a research report by Bloomberg’s BNEF Climatescope cited the Philippines as having entered behind India, China, and Chile as the fourth country among the top five countries where clean energy investments are being undertaken.



For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/

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